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July 29, 2011

FT: China, Detroit, Foreign Talent

Foreign talent sought for Chinese Detroit

By Patti Waldmeir in Shanghai

If there is one thing China does not lack, it is engineers: every year, hundreds of thousands of them graduate from Chinese universities.

But in May, Beijing Automotive Group (BAIC), the state-owned carmaker, held its first German recruitment fairs in Stuttgart, Munich and Aachen – to hire engineers. In the same month, Dongfeng Motor, another large Chinese carmaker, went to Munich looking for talent, following in the steps of state-owned car manufacturers such as SAIC Motor Corp and ambitious private carmakers such as Geely.

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“Increasing numbers of Chinese carmakers are recruiting overseas, in Detroit, Stuttgart and Nagoya,” says Ivo Naumann, head of consultants AlixPartners in Shanghai.

Some seem intent on building a second Detroit in China, while others are building research and design operations overseas – including in Detroit itself. Earlier this year, state-owned Chang’an established the first research and development centre by a Chinese carmaker in the US car industry capital. Chang’an also has R&D centres in Italy, Japan and UK.

This appetite for overseas talent springs from a deep frustration at the failure of domestic carmakers to compete effectively with the foreign carmakers who dominate the world’s largest car market, industry analysts say. “They need to gain market share,” says Namrita Chow at IHS Automotive in Shanghai.

Beijing’s plan to build a strong indigenous car industry, starting in the early 1980s, has not worked out as planned. Foreign carmakers failed to transfer as much technology and knowhow to the indigenous partners they were forced to take in 50:50 joint ventures, leaving domestic carmakers with under 30 per cent of the local market.

Last year, according to AlixPartners’ 2011 China Automotive Outlook report, Chinese carmakers such as Geely, state-owned Chery and BYD, which is backed by Warren Buffett, lost market share. Alix forecasts that by 2016 local carmakers will still have only 34 per cent of the market.

Recently, Beijing has stepped up efforts to attack that foreign dominance through a range of policies including consolidation of the highly fragmented domestic car industry; pressuring multinational carmakers to develop true indigenous brands with their local joint venture partners; and allowing strategic purchases of foreign car assets, like the recent acquisition of Volvo by Geely.

It is all part of Beijing’s much-touted plan to transform China into a country that designs and creates global brands – rather than merely assembling global products.

But for that the local car industry needs talent: engineers and especially managers trained overseas and experienced in the global car industry. Zhang Junyi, automotive consultant at Roland Berger in Shanghai, says China especially lacks engineers with the experience to manage other engineers.

“Sure there are many engineers in China,” says Bill Russo, of Synergistics auto consultancy in Beijing, former head of Chrysler in China.

“But the talent pool is fairly shallow. Chinese companies are finding that there are many engineers who have been educated in the West, including overseas Chinese, who are anxious to work in such a dynamic place as China,” he says.

“This allows them to fill the talent gap that they are unable to fill with domestic recruiting”.

BAIC, which went to Germany targeting mostly Chinese job applicants, said it got more German applicants than expected but ended up hiring only one of them, along with just under 40 Chinese.

But some Chinese carmakers say recruiting overseas also has its pitfalls. SAIC went to Detroit in the wake of the global financial crisis in 2008 to scoop up automotive engineers who had been made redundant. It found that the new recruits, many of them Chinese, had trouble settling in China, especially if they left families overseas.

Industry insiders say SAIC believes it is worth the cost to have foreign talent work for the company in their home country: SAIC has a “centre of excellence” for engineering and design of MG and its own-brand Roewe cars in Birmingham at the site of the bankrupt MG Rover. Farther north in Nottingham, Chang’an last year opened an R&D centre that will employ 200.

Car analysts say these firms plan to reverse the globalisation path followed by US and European carmakers, which started with R&D centres in their home countries and built factories overseas. Some Chinese firms are doing the opposite – greatly boosting costs in the short term.

But companies such as SAIC think expensive overseas R&D will pay off in long-term profits and give Chinese firms a strong position in their homeland market, for the first time in history.

Additional reporting by Daniel Schaefer in Frankfurt and Shirley Chen in Shanghai